Public Accounts Committee on March 5th, 2013

[Benoît Robidoux]

As I'm saying, it's what you just read there. They are analyses, not reports—just to be clear—that we did for the Minister of Finance to inform him about the situation, and so in that context it would be up to the Minister of Finance and the government to decide to release those analyses that were provided for advice to him.

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

Well, I think, Mr. Chair, that we have a hostile witness, because we're splitting hairs. If there was a report given, unless it was a verbal report, there must have been something on paper.

I'll now refer this, and provide a notice of motion to the committee, which I'll move later on, Mr. Chair, that the committee order the Department of Finance to produce the documents referred to in paragraph 7.50 of chapter 7 of the Fall 2012 Report of the Auditor General of Canada to the House of Commons, entitled “Long-Term Fiscal Sustainability—Finance Canada”, and which have not already been made public, namely, long-term fiscal sustainability analyses from 2010 to the present; and that the documents be deposited with the clerk within seven calendar days of the adoption of this motion; and that the committee defer the consideration of a draft report on chapter 7 of the Fall 2012 Report of the Auditor General of Canada to the House of Commons, entitled “Long-Term Fiscal Sustainability—Finance Canada”, until the documents are deposited with the clerk.

I give notice of that motion because, Mr. Chair, we do not seem to have a sense within this committee that you are committed...the Department of Finance of the Government of Canada does not seem in the least bit committed to honouring its 2007 commitments in the budget, wherein it was stated that you would provide this information on a public and ongoing basis.

If you're telling me now that these reports don't actually exist from 2010, 2011, and 2012, and that the Auditor General actually had it wrong when the Auditor General stated to us in his report to Parliament that “while long-term fiscal sustainability analyses have been regularly prepared since 2010” but “have not been made public”, would you like to re-craft your answer to this committee now?

[Benoît Robidoux]

Sure, I will not re-craft but restate that we did analyses, and they are documented in this report, in the report of the Auditor General. I was just making the nuance about a report for publication. Those—

[Gerry Byrne, Liberal, Humber—St. Barbe—Baie Verte, NL]

I understand...[Inaudible—Editor]

[The Chair, NDP, David Christopherson]

Mr. Byrne, please, you're out of time.

[Benoît Robidoux]

—were internal analyses of the Department of Finance. They were not reports prepared for publication with the intention of getting them published. This was my only nuance.

[The Chair, NDP, David Christopherson]

Okay. We have your answer on the record.

Mr. Byrne has served notice of a motion. We'll deal with that at the end of this meeting.

Very well, moving on to the next speaker, it would be Mr. Hayes, who now has the floor.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

Thank you, Mr. Chair.

Ms. Cheng, you indicated that the approach wherein officials use professional judgment to determine whether the long-term fiscal impact needs to be considered is a reasonable approach. Can you give me some sense of under what circumstances professional judgment would be used?

[Nancy Cheng]

Mr. Chair, we actually have selected six measures. In some of those measures, a good example would be the GST reduction from 7% to 6% and then to 5%. On that particular measure, Finance exercised its judgment and decided that it was not going to be a significant impact in terms of the change, of the debt relative to GDP moving forward as a result of that measure. Therefore, it is not worthwhile to actually prepare a long-term analysis on that particular measure, and one was not done.

We do have to respect judgment from the managers in terms of their call, and we cannot be second-guessing the management's call. Provided that they have thought it through and they have a rationale for that, we do accept that they need to make that judgment call from time to time.

We do call it an opportunity for improvement, though, because when those judgment calls are made, it's not obvious how much conversation they have among staff, or whether senior executives are in agreement and they agree to consider making a better documentation to improve the due process as they move forward.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

With respect to item 7.24 as discussed earlier, it states:

Officials indicated that such an analysis was not relevant because the cost of the measure in the long run would be offset by a reduction in the pension income gap between spouses. The Department assumed that the proportion of families with two income earners would gradually increase, lessening the opportunity to split pension income.

To me, that sounds like a reasonable professional judgment. In your estimation, is that a reasonable assumption or a reasonable professional judgment call?

[Nancy Cheng]

Mr. Chair, we did accept that explanation and did not question Department of Finance further on that. In a lot of the other measures, we tried to do our own projection, but it would be difficult to do one on pension income splitting.

In the report I think we explained that Finance has at its own disposal a number of models, including a T1 simulation model. This is a fairly complex model that we cannot replicate within the Office of the Auditor General. We were not in a position, nor are we in a position, to actually do projections ourselves to see if there's any reason to question that assumption. We have not chosen to challenge Finance on that and accept that as a judgment call.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

That being said, you have reviewed assumptions. Some of the assumptions that one would look at, obviously, are GDP, growth, wages, productivity, and interest rates.

I'm just curious as to how you ensure accuracy. I'm sensing the government was very accurate in their assumptions, because your models came very close to the government models with respect to the Canada health transfer, with old age security.

Can you speak to the accuracy of the assumptions that were made in terms of building these models?

[Nancy Cheng]

Mr. Chair, I would make reference to paragraph 7.21, where we talk about the fact that the Department of Finance uses a number of assumptions and about the work that we do around that.

Essentially, we first look at the process in terms of how Finance itself would know that the assumptions it used are reasonable ones or would stand some challenge. They do look at the validity of them by comparing with other forecasters, by looking at peers.

We look at it in terms of ranges. And that is why you also have the sensitivity analysis to say that because it's not precise, it could be off by a bit, and if it's off by a certain percentage, what the implications might be in the long term.

All of those things are done to give it that rigour in terms of that analysis. Again, I have to re-emphasize that these are projections and not predictions. I would not associate the word “accuracy” with any of these numbers. It's to give the policymakers an idea of the impact of this going out a number of years, whether it's going to help the overall financial outlook of the country in the long run or not, whether in the long term we have to raise taxes or cut other benefits because of decisions made today. It's to help support those kinds of informed decisions.

[The Chair, NDP, David Christopherson]

You have a half a minute, if you want.

[Bryan Hayes, Conservative, Sault Ste. Marie, ON]

No, this question would be a lot longer.

[The Chair, NDP, David Christopherson]

I very much appreciate your discretion and consideration for the rest of us.

We'll go over to Mr. Allen. You have the floor, sir.

[Malcolm Allen, NDP, Welland, ON]

Thank you very much, Chair.

Thank you to all for coming.

Mr. Robidoux, I'm doing this from my memory here, from what you said earlier in talking about the analysis done on the long-term liability and sustainability in the budget aspects that you've done. I don't doubt the word “analysis”.

You said earlier the release of those particular reports, talking about 2007, and I'm assuming—and that's a big word, I know, in the sense of I hate how it's spelled, quite frankly, but in any case—2008, 2009, 2010, 2011, and 2012, the first question is, were they all done, sir? Were those analyses actually done?

[Benoît Robidoux]

Do you mean in every year?

[Malcolm Allen, NDP, Welland, ON]

Not released, but were they done?

[Benoît Robidoux]

I couldn't answer that. I would have to go back. I think they were done on a regular basis. As I told you, through the crisis, we turned our attention to some other more urgent matters and then—

[Malcolm Allen, NDP, Welland, ON]

Sir, I'm going to have to interrupt you. You said you didn't know. Fair enough, I accept that.

Then I would ask the chair if we could instruct the witness to supply that information to the clerk. We'll all get that.

I heard you say in 2008-09 there was a crisis. Mr. Saxton walked you through that very ably. We got that.

Clearly, there were reports after the fact. I believe we talked about 2010, 2011, and 2012. It takes me to the obvious, sir, which is on page 23 of the English version of chapter 7, paragraph 7.57. The recommendation reads:

The Department of Finance Canada should publish yearly the overall long-term fiscal sustainability analyses for the federal government and provide from time to time an analysis for all governments combined, including the federal, provincial, and territorial governments, to give a total Canada perspective.

There are two things in here. I'll accept the fact that you don't feel comfortable with the provincial piece, and that's okay. I'm not too concerned about that with this particular question.

You did, sir, say, and I don't know whether you did yourself or who actually responded to this recommendation, but under “The Department's Response“ is “Agreed.” We intend not only to do the analysis, but we intend to publish them and make them public.

This brings me back to the very beginning when I started the statement. What I believe I heard you say earlier, and obviously, we'll be able to get it when the recording comes back, on a question about why you didn't publish them, I believe what you said was because the government decided not to, and I'm paraphrasing here. It was not your decision; it was theirs.

I am asking a pointed question. Was the reason that those other reports were not published publicly a governmental decision or a departmental decision?

[Benoît Robidoux]

At the end of the day, those are reports that are endorsed by the government, so it's a decision that is taken by the government to decide to publish or not.

[Malcolm Allen, NDP, Welland, ON]

Fair enough. I thought that's what I heard earlier, Mr. Robidoux, and I appreciate that confirmation.

Going back to the piece around the pension splitting, I agree with you, Madam Cheng. You said this is not a prediction. You're absolutely right. This is not even forecasting, per se; it's just trying to take a snapshot at this moment in time of something we think happens over time.

You said the analysis wasn't necessarily wholesome—my word. The dilemma I have with it is twofold. The underlying assumption is household income will be two persons in a household working and consequently pension splitting and that over time because both work they will get closer together and therefore there won't be any splitting because they'll both have ostensibly the same money via the pension.

I think this is more for Mr. Robidoux because your department did the assumptions, sir.

Was there any weight given to the fact, and this is a gender question, that women historically make less than men, and still do, by a substantive amount? I would have to assume that your predictive model was that will actually close until men and women actually make the same money. Was this the assumption in that piece? Because it isn't about whether two people work. That doesn't really matter. It all depends on whether both of them make the same because the two can work their entire lifetimes and if one is up here and one is down there, they're not the same.

I didn't see anything in that piece that said you will make the same money. I'll leave that to you, sir.

[Benoît Robidoux]

That and, as I said, the gap would not increase and would likely continue to decrease. It was not mentioned at what pace and all that. The only point that is made there, that we made at the time, is that the gap would likely decline. We didn't comment about any kind of pace of decline or anything like that.

What you have to understand is that clause that was mentioned in that year that was characterized through the T1 model was with the actual kind of gap that was existing at the time in the population. In order for this to increase, the gap would need to increase, so I would have to see either wages of one of the two spouses rising more rapidly than the other one to have the gap increase. We thought that the assumption was just a continuation of past trends without saying that it would close.

[Malcolm Allen, NDP, Welland, ON]

But the assumption made by the AG was that you talked about two incomes.